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Eldorado Gold Corp (NYSE:EGO)
Q4 2020 Earnings Call
Feb 26, 2021, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Corporation Q4 and 2020 Year End Financial and Operational Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jeff Wilhoit, Interim Head of Investor Relations. Please go ahead.

Jeff Wilhoit -- Interim Director, Investor Relations

Thank you, operator, and thanks everyone for taking the time to dial into our conference call today. On the line with me are George Burns, President and CEO; Phil Yee, Executive Vice President and CFO; Joe Dick, Executive Vice President and COO; Jason Cho, Executive Vice President and Chief Strategy Officer; and Peter Lewis, Vice President, Exploration.

Our release yesterday details our 2020 fourth quarter and year-end financial and operating results. This should be read in conjunction with our fourth quarter and year-end financial statements and management's discussion and analysis, both of which are available on our website and also been filed on SEDAR and EDGAR. All dollar figures discussed today are US dollars unless otherwise stated. We will be speaking to the slides that accompany this webcast. You can download a copy of these slides from our website.

Before we begin, I would like to remind you that any projections including -- included in our discussion today are likely to involve risks which are detailed in our 2019 AIF and in the cautionary note on Slide 1.

I will now turn the call over to George.

George Burns -- President and Chief Executive Officer

Thanks, Jeff, and good morning everyone. Here is the outline for today's call. I'll provide a brief overview of Q4 and 2020 before touching on some of the milestone developments that have taken place since the end of the year that have positively altered the outlook for Eldorado in this young year. Then I'll pass it to Phil to go through the financials. Joe will follow by reviewing operational performance. Then we'll open it up for questions.

I'm very pleased with the strong operational and financial results in Q4 and over 2020. We delivered on many fronts, including maintaining and achieving our original 2020 guidance and achieving our highest quarterly production in nearly five years. Production totaled almost 529,000 ounces for the year amid an improving cost profile. We finished the year in a solid capital position with over $500 million in cash and equivalents, which increases our financial flexibility to fund our growth. And we did this all amid an historically challenging year. I'm extremely proud of our teams as they continue to show courage in the face of adversity, while working together to deliver on our key catalyst and drive value for stakeholders.

Speaking of catalyst. We have had a tremendous start to the year with the major milestone of signing the Amended Investment Agreement in Greece. The pending acquisition of QMX in Quebec and this week's announcement of a maiden resource at Ormaque that demonstrates our continued exploration success in the region. Our strategy of prudent reinvestment in high quality opportunities within our portfolio continues to take shape. Among these is the advancing the world-class Skouries project in Greece and our Lamaque operations in Quebec. I'll talk more on both of these in a moment.

Over to Slide 4. Many of you have seen our early February news of signing Amended Investment Agreement in the Hellenic Republic. This is a huge achievement for us as well as for the government and is a testament to the dedication of all involved. The Agreement delivers a commercial framework that sets the stage for a productive and mutually beneficial relationship with the government. It also provides a path to unlock transformational value from the Kassandra Mines as our development plan of leased assets is part of the Agreement. It was an honor to be able to attend the signing ceremony in person alongside Christos Balaskas, our VP and General Manager of Greece. Also present were the Minister of Energy and Environment, the Minister of Finance and the Minister of Development and Investment. The attendance of the Canadian and US ambassadors also added support for increased trade and investment between North America and Greece.

Perhaps a bit of a refresher on the Agreement itself. The modernized Agreement amends the 18-year-old contract that was put in place by a previous owner under vastly different economic circumstances. At the time, the contract was a simple Asset Transfer Agreement that reflected the distressed nature of the Kassandra Mines. This modernized Agreement now reflects the use of updated technologies such as dry stack tailings and improved water management and the needs of an investment of this size. It also maximizes value for all stakeholders while bringing about significant economic and environmental improvements. It's a mutually beneficial agreement we can all be proud of.

As you are aware, investor protection mechanisms and permitting assurances were important parts of our ongoing discussions with the Greek government. These are included in the agreement and are similar to clauses offered to other foreign direct investors. The agreement also outlines enhance fiscal revenues for the Greek state, job creation, community development opportunities and various environmental benefits. Skouries and Olympias are world-class assets and we believe it's important that all stakeholders benefit from their development. A bit more detail on the fiscal revenues for the Greek state, particularly the royalty increase of 10% for all metals contained in concentrate. To clarify, the current 2% royalty at $1,300 gold now becomes a 2.2% royalty.

Over to the next slide that sets out the next steps in Greece and specifically at Skouries. As we've mentioned previously, the investment agreement now needs to be ratified by parliament. We expect this to occur by the end of Q1 with the publication in the government is that shortly thereafter. The arrows here show the stage gates to resume construction at Skouries. It will be a busy year with the approval of the permit to use dry stack tailings expected in Q2 and commencement of pre-construction activities thereafter. We aim to complete a feasibility study in Q3, while concurrently evaluating funding alternatives. We expect the potential investment decision by year-end and thereafter look to restart construction in 2022.

Back to this side of the Atlantic. I want to say a few words on key catalyst delivered this quarter in Quebec. First the Friendly Acquisition of QMX strengthens Eldorado's position in the world-class Abitibi Greenstone District by increasing our land holdings by approximately 550%. Scheduled to close early April, this would add a pipeline of organic exploration opportunities proximal to our existing infrastructure at Lamaque, including about 690,000 ounces of existing mineral inventory. Under the second catalyst. Our recent announcement of the 803,000 ounce Maiden Inferred Resource at Ormaque. This early exploration success highlights the outstanding growth potential at Lamaque. The strike continuity, vein orientation and dimensions of our marked deposit exhibit important similarities to parts of the nearby historically mine Sigma deposit and mine too. As you can see from the map here, it is ideally positioned along the ore haulage decline now under construction connecting the Lamaque Triangle underground mine with the Sigma Mill.

We will be conducting an infill and expansion drilling throughout the course of the year as the deposit remains open in multiple directions. So very encouraging initial results. Taken together, these two catalysts underscore Eldorado's commitment to Quebec and Canada as a core jurisdiction in our portfolio. They also support our strategy in the region of developing a pipeline of additional ore sources within and proximal to the Lamaque Triangle mine which could leverage existing infrastructure and optimize the Sigma mill, which has a permit of capacity of 5,000 tonnes per day.

I'll stop there. Over to you, Phil.

Philip Yee -- Executive Vice President and Chief Financial Officer

Thank you, George. Good day, everyone. Before getting into our Q4 2020 performance, I would like to highlight the operational and financial turnaround for the company over the last year. Slide 8 exhibits the improved quarterly financial performance in 2020 with adjusted net earnings of $170.9 million and free cash flow generation of $236.2 million for the year.

Over to our Q4 and full year financial results on Slide 9. Eldorado's strong finish in the fourth quarter caps a dramatic year-over-year improvement in virtually every key area of our business in 2020. Gold production totaled 138,220 ounces in Q4 2020, a sizable increase compared to 118,955 ounces in Q4 2019. Annual production totaled 528,874 ounces in 2020, a 34% increase from 395,331 ounces in 2019. Despite impacts related to COVID during the year, annual guidance was maintained throughout the year and achieved. Compared to the prior quarter, Q4 saw increased gold production, partially offset by lower realized metal prices.

Eldorado generated $278.5 million in total metal revenue in the quarter compared to $191.9 million in Q4 2019. For the year Eldorado's metal revenue exceeded $1 billion for the first time since 2014. Gold revenue in Q4 2020 totaled $253.7 million, an increase of 44% over Q4 2019. Gold revenue comprised over 91% of the total metal revenue in 2020, increasing 77% to $938.3 million versus $530.9 million in 2019. This increase resulted from higher gold sales volumes of 137,523 ounces sold in Q4 2020, compared to 118,902 ounces sold in the fourth quarter of 2019. The increase in revenue was also the result of a higher average realized gold price in Q4 2020 of $1,845 per ounce as compared to $1,475 per ounce in the comparative quarter end 2019.

The company reported net earnings to shareholders in Q4 2020 of $22.8 million or $0.13 earnings per share. After adjusting for one-time non-recurring items, including a $40 million non-cash writedown related to capital works in progress and a $3.4 million VAT provision associated with the writedown, adjusted net earnings for Q4 2020 increased to $58 million or $0.33 adjusted net earnings per share. This compared to $19.3 million or $0.12 adjusted net earnings per share in the same quarter one year ago. Full year 2020 adjusted net earnings also increased significantly compared to the prior year totaling $170.9 million or $1 adjusted net earnings per share, compared to $2.4 million or $0.02 adjusted net earnings per share in 2019. The increased net earnings and adjusted net earnings reflect higher gold prices and higher gold sales in 2020, relative to the previous year.

EBITDA totaled $95.1 million in Q4 2020 and increased to $144.2 million in adjusted EBITDA for the quarter, after adjusting for among other things, the previously mentioned $40 million one-time non-cash writedown related to capital works in progress. In comparison Q4 2019 EBITDA totaled $158.7 million and after adjusting for a reversal of impairment in 2019, adjusted EBITDA was $80.3 million for Q4 2019. For the full-year adjusted EBITDA totaled $534 million for 2020, a significant increase from $235.6 million for 2019. We also saw increased capital spend in the fourth quarter as efforts were made to advanced projects. Eldorado's entering a growth phase and capital will be higher in 2021 as we position our producing assets for future production and growth.

At Kisladag, we are in year two of a multi-year pre-stripping phase that will position the mine for a sustained period of enhanced free cash flow over an increase mine life. In addition, completion of the high pressure grinding roll circuit at the end of Q3 and the North Leach Pad expansion at the end of the year will substantially bring to a close the project process capital associated with the successful mine life extension we announced in early 2020. At Lamaque, the capital is focused on underground development as we continue to grow the relatively new mine and the underground decline connecting the Triangle deposit directly to the Sigma mill is expected to be completed by the end of the year. Olympias will similarly see higher capital in 2021, focused on increased underground development and improvements to position the mine for greater productivity and efficiencies.

Depreciation and amortization totaled $70.4 million in Q4 2020 versus $52 million in Q4 2019, reflecting the higher production in the quarter as a significant portion of our property, plant and equipment depreciates over mine life on a unit of production basis calculated based on mineral reserves. We believe that continued exploration success of the sort that George mentioned at the outset, should continue to add meaningfully to mine life and to the overall production profile at our operating mines.

There were no significant changes in finance costs in Q4 2020. For the year finance costs increased to $50.9 million from $45.3 million in 2019, primarily due to $6.3 million of premiums paid upon the early redemption of $66.1 million of the $300 million senior secured notes during 2020. Q4 2020 reported a $4.6 million tax recovery compared to a $9.8 million tax expense in Q4 2019. Q4 2020 tax reflected the receipt of a $21.7 million investment tax credit in Turkey related to the Kisladag heap leach project, including among other things, the installation of the HPGR. The investment tax credit received reduces the effective tax rate in Turkey in Q4 2020.

I am pleased to report that we ended 2020 in a net cash position. We finished the quarter with $511 million in cash, cash equivalents and term deposits and approximately $29 million available under the revolving credit facility. Perhaps most importantly, Q4 2020 free cash flow totaled $48.4 million, significantly higher than the $5.5 million for Q4 2019. This was lower than the previous quarters due to a lower effective gold price in the quarter and the timing of capital spend. As previously mentioned, this brought our total free cash flow generation to $236.2 million for the year. Subsequent to the end of the year, we have also added to our overall liquidity position. Our revolving credit facility had $70.8 million in credit allocated to cover non-financial letters of credit that were issued to secure certain obligations in connection with our operations. In February 2021, an amendment was completed such that the non-financial letters of credit no longer reduce credit availability under the revolving credit facility. And $100 million in undrawn credit is now available to the company. A prepayment of $11.1 million of principal on the term loan was made in conjunction with this amendment.

In addition to this liquidity boost, Eldorado also continued to reduce debt with an additional $7.5 million payment in December, reducing the balance of the senior notes outstanding to $233.9 million as of the end of the year. In addition, the scheduled principal payment of $33.3 million was completed in December reducing the term loan balance to $133.4 million at the end of the year. Net leverage is at 0.04 times EBITDA at the end of Q4 2020. This is a significant reduction from net leverage at 1.25 times EBITDA at the end of Q4 2019 and reflects a much stronger balance sheet compared to a year ago.

As George discussed earlier, entering 2021 with this increased level of financial strength, increased liquidity and improved credit profile provides added flexibility to take advantage of the many compelling opportunities before us. Against the backdrop of our recent positive news in Greece and in Quebec, we enter 2021 a significantly stronger or financially flexible company.

With that I will now turn it over to Joe to go through the operational highlights.

Joseph Dick -- Executive Vice President and Chief Operating Officer

Thanks, Phil and good morning everyone. Amid an unprecedented operating environment over the last year, I'm very pleased to -- pleased that our mines achieved 2020 production and cost guidance. It's important to point out that our guidance remained unchanged throughout 2020, even as global commercial activity slowed to a crawl last spring as the extent of the pandemic became more fully known. We produced 138,220 ounces of gold in the quarter at cash operating costs of $536 per ounce sold and all-in sustaining costs of $959 per ounce sold. I am proud of our team's accomplishments across our mines and projects. The team at Lamaque deserves particular recognition for outperforming against plan in what was essentially a 49-week year due to government-mandated shutdown of operations in Quebec last spring.

Reviewing the five-year outlook we released in January 14, the midpoint of our new production guidance for 2021 increased by 10,000 ounces compared to the guidance we issued a year ago, due primarily to higher production expectations at Lamaque as minings continues in C4. Looking over the five-year guidance horizon, a substantial period of outperformance at Lamaque, coupled with an improved operating outlook at Kisladag has enhanced our overall five year production profile compared to a year ago. Skouries, Perama Hill and Ormaque represent potential upside.

Turning to current operations. Kisladag ended the year, better positioned to deliver on our planned project work going forward. The team on site has progressed on a number of critical initiatives, including the completion of the process pond that will allow us to store more pregnant solution. The installation of two additional CIC trains is on track for the end of the current quarter, which is expected to increase our solution processing capacity from 3,250 to 3,750 cubic meters per hour. The installation of a new carbon column regeneration kiln is on track for scheduled completion during the second quarter of 2021. HPGR commissioning remains on track for the third quarter and we expect to have indicative recovery information by year-end. Phase 1 of the North heap leach pad expansion pictured here in gray on the slide, is expected to be ready for stacking by year-end. We are also progressing well on our multi-year pre-stripping campaign, which is back on track after the COVID slow down. Kisladag is expected to mine in place under leach in excess of 11 million tonnes in 2021 at an average gold grade of 0.69 grams per tonne.

The flotation columns installed at Efemcukuru have been successfully commissioned and are now online. This will have a positive effect in 2021 and beyond on the quality of our gold concentrate and the transportation savings related to reduced tonne shipped. I am pleased to report that this project was completed on schedule and on budget. In 2020 -- in 2021 Efemcukuru is expected to mine and process almost 520,000 tonnes of ore at an average gold grade of 6.6 grams per tonne. Efemcukuru continues to be a steady and safe performer, with stable production and over three years without a lost time incident. We also continue to have success through the drill bit that may allow for meaningful mine life extension through resource conversion at Kokarpinar.

At Lamaque, underground mining in the C4 zone began in earnest in the fourth quarter and our results there to date have been better than expected with positive grade reconciliation on the first two stopes taken. We expect to average approximately 2,000 tonnes per day at Lamaque during 2021 at an average gold grade of 6.6 grams per tonne. Our underground crews and contractors are now advancing the decline from both ends between Triangle and the Sigma mill on schedule. As of February 24, we have completed 1,140 meters of advance and we expect to be in the proximity of Ormaque during September on the way to connection of the decline by year-end. Completion of the decline is expected to reduce operating costs, as surface haulage costs are eliminated and the current Triangle haulage ramp is replaced with straight line haulage to the Sigma mill with reduced emissions providing an important environmental benefit as well.

Our focus in 2021 is continuing to work to optimize the Lamaque operation. During 2020 we advanced the technical work for further mill expansion, paste backfill tailings alternatives and decline materials handling. We have also had success debottlenecking the mill to 220 -- 2,200 tonnes per day and look to improve upon that work in the year ahead. During 2021, we will combine that technical work with our exploration program to better incorporate the regional potential and move our plans forward in a disciplined manner, truly exciting times at Lamaque.

Over to Olympias. I am pleased to report that the mine met its full-year production plan in 2020. Mine is expected to reach 443,000 tonnes in 2021 at average grades of 7.3 grams per tonne gold, 104 grams per tonne silver, 3% lead and 4% zinc. Underground development along with continued operational efficiency improvements remain the focus at Olympias as we continue to ramp up the mine. We expect to see decline in cash operating costs as a result. As elsewhere throughout the portfolio, there is compelling opportunity for improvement and we look forward to sharing our progress with you in the year ahead.

With that, I'll turn it over to George for closing remarks.

George Burns -- President and Chief Executive Officer

Thanks, Joe. Before wrapping up, I'd like to again recognize the contributions of George Albino, who stepped down as our Chair of the Board at the beginning of this year, and welcome, Steve Reid to the role. George remains as a Board -- on the Board of Directors.

I'd also like to mention the following new appointments to our leadership team. We have a lot of project work ahead of us and I'm excited to leverage the skill set of these individuals to deliver our growth plans. Simon Hille, joined Eldorado as Vice President, Technical Services in November 2020. He is responsible for technical projects and fostering innovation throughout the company. Sylvain Lehoux was promoted to Vice President and General Manager of Quebec in early December. He will continue to oversee all mine operations in Quebec, while also taking on increased responsibilities as an ambassador for Eldorado in the region. Brock Gill will join as Senior Vice President, Projects & Transformation in March. Previously with BHP, Brock will oversee development engineering activities, project delivery of major capital projects and transformation through business improvement initiatives at Eldorado.

With several key catalysts already delivered or under way in this year, 2021 is shaping up to be a pivotal year for Eldorado. We expect this positive momentum to continue as we deliver on our guidance and growth plans. Our focus in 2021 is unlocking the compelling value at Skouries and throughout our portfolio, while continuing to put safety, sustainability and good governance at the core of our business. I'm excited for the dynamic year ahead and look forward to updating the market with all of our exciting progress. Thank you, everyone.

I will now turn it over to the operator for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Cosmos Chiu from CIBC. Please go ahead.

Cosmos Chiu -- CIBC -- Analyst

Hi. Thanks, George. Phil, Joe and team. Thanks for the conference call. Great to see the revised agreement in Greece and also the resource update at Ormaque. Maybe my first question is on Ormaque. Could you remind me what kind of drill spacing you needed to get Ormaque into inferred and then eventually what kind of drill spacing would you need to get it into M&A and then eventually into reserves?

Peter Lewis -- Vice President, Exploration

Yes, thanks Cosmos, it's Peter here. I'll answer that question. Given that this is a, it's a blind deposit that we can't directly observe at surface. We are fairly aggressive in our initial drill spacing before we are comfortable going to inferred. So the inferred resource that we announced is based on an average drill spacing of the mineralized lenses. It's around 70 meters, 80 meters through most of the deposit and it's a bit tighter in areas where we want some additional confidence. In addition to that, we trimmed the mineralized shapes so that we don't include anything that's more than 50 meters from a drill intercept. So we are pretty conservative on our approach at the inferred level.

And in terms of next steps and converting to have indicated resources, we're still working on that and the program that we're initiating right now actually is to go back into the inferred, tighten up the drill spacing and just give us a little bit more -- basically verify the geological model that the inferred resource is based on. And then in addition to that with our haulage decline we will actually have direct underground exposure part -- the upper part of Ormaque, probably early 2022, possibly even late 2021. And that in addition, will help us define our strategy going forward. So we haven't defined the drill spacing for conversion yet. We need that additional information before we're comfortable doing it. And then of course, the step that will be true for defining reserves as well.

Cosmos Chiu -- CIBC -- Analyst

Thanks, Peter. And to follow-up I guess, looking at the geometry of Ormaque here, it looks to be a fairly flat lying structure. I seem to remember, previously, you had explored Minrail as a potential method of mining it. It didn't really work out. I think there were some technical challenges. Since then have you given us some more thought in terms of how you might tackle and mine this deposit?

Joseph Dick -- Executive Vice President and Chief Operating Officer

Cosmos, this is Joe. We're generally -- we're in early days of that and we'll need a bit more information. But we've looked at it in a more of a conventional drift and fill or a room and pillar and so at this point it's too flat for Minrail and so I just say at this time, it's hard to determine, but as we get a little more understanding of great continuity and that kind of thing, we'll begin the method selection. But those are two things that we've done and the preliminary is on.

Cosmos Chiu -- CIBC -- Analyst

Great. And then, talking about the decline here. As you mentioned, it's going to get fairly close to Ormaque by Q3 2021. Do you anticipate doing any kind of work or any kind of development on it at this point in time or is it still too early?

Joseph Dick -- Executive Vice President and Chief Operating Officer

Well, we'll get a bit more information before we make that decision from the current drill program. And we will get an engineer started on potential options and we'll make that decision as soon as practical, but it's a bit early just yet Cosmos.

Cosmos Chiu -- CIBC -- Analyst

And then Joe, could you remind me what's the potential capacity of this decline is?

Joseph Dick -- Executive Vice President and Chief Operating Officer

In what respect. In...

Cosmos Chiu -- CIBC -- Analyst

In terms of throughput, yes. Haulage capacity.

Joseph Dick -- Executive Vice President and Chief Operating Officer

I'd have difficult to giving you that right now. I think we're well in excess of 3,500 tonnes per day. Perhaps a bit more than that, but right now, depending on what we ultimately do, I think that capacity is still remains to be determined.

Cosmos Chiu -- CIBC -- Analyst

Okay. And then maybe one last question here, just wrapping it all together, George, as you mentioned Lamaque previously there is capacity potential to get it up to 5,000 tonnes per day. Given what you have today at Ormaque, given that on top of Ormaque there is actually a lot of inferred ounces. At this point in time do you think there is enough to potentially support 5,000 tonnes per day or do you really have to see what you have a QMX and wait for that to close. And then kind of see more regional basis what you have?

George Burns -- President and Chief Executive Officer

Thanks Cosmos. Well it's completely dependent on our exploration success. And you can see we've got a number of targets at Lamaque and with QMX potentially closing at the end of the quarter. Just going to open up the field for Peter and our team at Lamaque to find additional feed for that plant. So we don't currently have that in front of us. But when you contemplate the current exploration targets and the direction we're headed to expand those, and over the longer haul, I'm confident we're going to be pushing that throughput level up. It's just right now, we're not far enough advanced to be able to identify exactly where it's going to come from.

Cosmos Chiu -- CIBC -- Analyst

Great. And those are the questions I have. Looking forward to the rest of 2021 and have a good weekend.

George Burns -- President and Chief Executive Officer

Thanks.

Operator

The next question is from Fahad Tariq from Credit Suisse. Please go ahead.

Fahad Tariq -- Credit Suisse -- Analyst

Hi. Thanks for taking my question. Maybe first for Phil. In the quarter in Q4, can you talk about, it looks like cash taxes were quite a bit higher in the quarter. Is there anything of note there?

Philip Yee -- Executive Vice President and Chief Financial Officer

The cash -- hi Fahad. The cash taxes are really tied to Turkey and to the federal tax in Turkey and the Quebec mining duties at Lamaque. And in Turkey in Q4, the taxes were offset by the receipt of almost, I think it was $27.1 million in investment tax credit. So that offset the cash taxes and also there was adjustment from a foreign exchange tax as well that we got a refund. So that reduced the effective tax rate in Turkey. In related to Lamaque it's all tied to the Quebec mining duties and because of the higher production in Q4 our Quebec mining duties increased in Q4.

Fahad Tariq -- Credit Suisse -- Analyst

Got it, OK. And then just on the Investment Agreement in Greece. Is there any risk that it does not past parliamentary ratification? Is that something we should even be thinking about, at this stage?

George Burns -- President and Chief Executive Officer

I would say, no. We've been working really hard with the Greek government on putting together this mutually beneficial agreement. And as I stated, three key ministers signed the agreement with us, new democracy has a majority in Parliament, they wouldn't have signed the agreement, if their party wasn't intent on passing the Agreement into law. So has a very high confidence that's going to happen shortly.

Fahad Tariq -- Credit Suisse -- Analyst

Okay, great. And then just a last question kind of related to that. I know you've said it previously that you're looking for any funding partner for Skouries, but with an improving balance sheet it is possible that you could do the project alone. Maybe give us your latest thoughts on how you're thinking about moving forward with the project?

George Burns -- President and Chief Executive Officer

Well, for sure our balance sheets much better positioned. We've made tremendous progress over the last year and a half in that vein and from our perspective, it puts us in more of a driver seat to come up with an optimum financing for Skouries. Our strategy still remains to look at to put in place a joint venture partnership and partly for funding, partly to have another voice to have influence over the multi-decade life of these assets. So at the end of the day, it's going to be a balance between the various options we have from a joint venture perspective as well as other funding alternatives that we continue to evaluate and boiled down to certainty of getting the return on investment, derisking the project however we can. And at the same time getting the best returns for Eldorado shareholder [Indecipherable]. It's tough for us at this to be pretty clear about where we land on that and from my perspective the catalysts that we've outlined, which is ratification, approval of dry stack permitting and advancing the engineering to a feasibility level by Q3, all that's going to underpin certainty on the investment and position Phil and Jason to optimize the financing strategy for it. So in summary, I'd tell you, we're in a better position from a flexibility perspective, but we're pursuing all alternatives.

Fahad Tariq -- Credit Suisse -- Analyst

Okay, got it. That's it from me. Thank you.

George Burns -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Kerry Smith from Haywood Securities. Please go ahead.

Kerry Smith -- Haywood Securities -- Analyst

Thank you. So for the 25% royalty increase in Turkey, was that all cash, because it was retroactive till January 1 of last year. You said all cash settled in Q4 then?

Philip Yee -- Executive Vice President and Chief Financial Officer

Hi, Kerry. That was all cash settled in Q3, because it was announced in Q3. And it was retroactive to the start of the year. So you would have seen a higher royalty impact for the full year come through our Q3 numbers and Q4 would just reflect the incremental amount for Q4.

Kerry Smith -- Haywood Securities -- Analyst

Okay, got you, OK. And can you just, for my -- just to make sure what is the actual royalty now and is it a sliding scale royalty, just remind me what the rate is and how it works?

Philip Yee -- Executive Vice President and Chief Financial Officer

It's a sliding scale. I'm just -- do we have the actual. I don't have the actual scale in front of me Kerry. But it is a sliding scale.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Okay. Maybe we can just -- we can get it later offline. Okay. And is decline at Lamaque is completed by year-end, how much equipping is there to do and other work to do before that decline would actually be functional and be able to move mark up to the plant.

Joseph Dick -- Executive Vice President and Chief Operating Officer

Can you repeat that Kerry. I missed the end of the question. This is Joe.

Kerry Smith -- Haywood Securities -- Analyst

Hi, Joe. I was just wondering if you finish the decline by the end of the year. Is it -- at that point in time is it fully ready to go and ready to be utilized for back haulage or just incremental work to be done. And if so when would it be ready for haul transport?

Joseph Dick -- Executive Vice President and Chief Operating Officer

Okay. There'll be a little bit of incremental work to be completed. I think we could use it, but we made connection by year-end and then we work out the road surfaces and all of that prior to utilization. But it's not a very long time period, one -- a month, six weeks post connection, we're ready to haul.

Kerry Smith -- Haywood Securities -- Analyst

Okay. And George, perhaps could you just remind me again your rough estimate as to what it would cost for capital to expand the Sigma mill up to, say, 4,000 tonnes or 5,000 tonnes. I heard you say 5,000 tonnes a day.

George Burns -- President and Chief Executive Officer

Yes, I mean we've been public was about $50 million in that capital level envision putting in SAG mill, which was in the circuit originally but was sold by a predecessor company. So it's -- I mean physically what has to happen we need additional grinding capacity and we'd have to upgrade the remaining leach tanks. And we're doing further engineering on that and looking at incremental analysis and depending on how our exploration success unfolds, we'll make the appropriate decision for the next level of expansion.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Okay, so it's $50 million. And based on what you see today at Ormaque with those flatline [Indecipherable] separate lines, is there -- was that geometric configuration support say 1,500 tonnes a day, would that be a reasonable expectation for the kind of tonnes that you may be able to pull from that operation?

Joseph Dick -- Executive Vice President and Chief Operating Officer

Kerry, this is Joe. I'll answer it. Based on current knowledge and the inferred resource and the very preliminary work that we have done, we're more in that 700 tonnes to 800 tonnes per day sustained. However, given the step out capacity, we don't see that is unrealistic based on how exploration proceeds.

Kerry Smith -- Haywood Securities -- Analyst

Okay. Okay, that's helpful. Thank you, Joe. And just remind [Indecipherable]. What was the $40 million that you had spent at Olympias? What was that for that you canceled?

Philip Yee -- Executive Vice President and Chief Financial Officer

Kerry, it's Phil here. So you're referring to the writedown. That was part of the original agreement and plan that was in place. So that was related to tunnel that was being developed.

George Burns -- President and Chief Executive Officer

Maybe I can jump in. In the original business plan that's I think it's like more than 10 years old now. The idea was to run Olympias for a phase and then to build the new flotation circuit in the next valley and so this decline would have been put in place to deliver the ore from the underground at Olympias into the next valley into what was perceived to be the [Indecipherable] flotation facility and that that plant was going to be, as I recall around 900,000 tonne capacity. So with our new business plan or public disclosure, the plan is to expand the Olympias plant and then run that plant through the life of mine. So it has better return on investment, which is good for Eldorado and our investors. It also maximizes value to the Greek state. So Kerry, essentially by getting agreement signed, that tunnel longer has a potential future use. And as a result was written down.

Kerry Smith -- Haywood Securities -- Analyst

Got you. Okay. Okay, that's helpful. And I guess just last question for me. The realized price was $30 an ounce below the LME average. I guess that was just timing of sales was it?

George Burns -- President and Chief Executive Officer

That's one of the opportunities and challenges of having concentrate and the portfolio is depending on the timing and the shipments and from the time we market shift until when we get the final closing from the smelter. The processes that you see ups and downs and this quarter happened to be a down and comparative price to the quarter.

Kerry Smith -- Haywood Securities -- Analyst

All right. Okay, that's great. That's all my questions. Thanks very much.

George Burns -- President and Chief Executive Officer

Thank you, Kerry.

Operator

The next question is from Josh Wolfson from RBC Capital Markets. Please go ahead.

Josh Wolfson -- RBC Capital Markets -- Analyst

Thanks. As it relates to the funding aspect for Skouries, what I recall historically is, the streaming option had been a low priority. But just kind of looking again, where the commodity prices are and understand there's a large base metals component. Is there any sort of higher consideration for that option now versus the past?

Jason Cho -- Executive Vice President and Chief Strategy Officer

Yes. Hi, Josh, it's Jason. I'd say streaming has a place in terms of how we're looking at all the alternatives related to funding Skouries. I think we're trying to keep an open mind to it and understanding that relative cost of capital on precious maybe versus base metal streaming have its advantages as well. But sort of answer to your question, yes we'd be keeping an open mind generally to funding alternatives including streaming.

Josh Wolfson -- RBC Capital Markets -- Analyst

Great, thank you. And then I may have missed this earlier, there is a number of questions on our [Indecipherable] like, in terms of timelines for when that ore will be able to be mined and incorporated in the plan with the decline, I guess meaning that by the third quarter, what sort of -- what sort of timeframe could you look at for that?

George Burns -- President and Chief Executive Officer

It's a bit preliminary to put a timeframe on it. I think we have to first kind of complete the exploration program in place now, gain access to the ore body to get a reach out and touch it. Understand that it's what we think it is and all the while, what we're doing that working on kind of extraction options. So I hate to put a timeframe on it, but a year later, perhaps somewhere in that general range, but I think it's too preliminary just yet.

Peter Lewis -- Vice President, Exploration

Yes, Josh, it's Peter. If I can jump in quickly. Just in terms of our plans, we are going to be hitting Ormaque pretty hard. We're quite excited about the potential there, but we are still at the resource definition and expansion stage and we're not even planning -- we're not even to the point yet where we can plan our resource conversion program in detail. So the emphasis over the next six months is going to be to get a better sense for the overall resource potential there and what that conversion program looks like. So that would be the next news from us as once we have a better understanding of that.

George Burns -- President and Chief Executive Officer

This is George, I just supplement all that. I mean, as Joe said, we'll be able to touch the deposit and break some rock and that's going to give us a lot of information. Peter outlined for a portion of the deposit, we're going to do some more detailed drilling that will give us another indication and after touching it and seeing they'll be able to nail down the appropriate drill spacing and depending on that that will impact how long it will take to get the confidence we need to put it into production. So it's still fairly early days to put a definitive timeline on it, but it took us a year from discovery to this inferred resource and I remain optimistic with the capability of our team that it won't pick -- it won't take that long. It looks pretty good to us.

Peter Lewis -- Vice President, Exploration

Yes. And one final comment is the bulk of the resource has been defined. It's relatively shallow, it's within the upper 400 meters. So we have the option of doing the delineation, drilling the conversion, drilling from surface or from underground once we get access there. So it's something we can advance quite rapidly.

Josh Wolfson -- RBC Capital Markets -- Analyst

Got it. And then one last question which I'm sure you're not going to like, because it's on timelines again. But as it relates to the updated PEE -- PEA sorry for Lamaque. Is there any sort of idea when we could see that and obviously incorporating Ormaque and maybe to simplify this, is that something that we would expect in 2021 or is this going to be still ways off?

Joseph Dick -- Executive Vice President and Chief Operating Officer

The preliminary view is toward the end of the year and I think as we learn more, we're certainly want to -- going to want to be as inclusive as we can with that PEA. So we'll update on a quarterly basis, but our present thinking is at or near year-end.

Josh Wolfson -- RBC Capital Markets -- Analyst

Okay, that's great. Thank you very much.

Operator

The next question is from Mike Parkin from National Bank. Please go ahead.

Mike Parkin -- National Bank -- Analyst

Hi guys. Thanks for taking my questions. Most of them have been answered, but in terms of Ormaque, is there -- what's the timeline in terms of metallurgical work on that or do you feel confident that the existing milling setup is suitable for it?

George Burns -- President and Chief Executive Officer

You can start.

Peter Lewis -- Vice President, Exploration

Yeah, I'll start, I'll just comment on the geological aspect of it. And just in terms of mineralogy, it's very similar to what we already have a Triangle. So we don't foresee any significant metallurgical issues. In terms of more detailed test work just to confirm that that's not currently scheduled and certainly once we get access underground we'll have the opportunity to do a more comprehensive program as well.

George Burns -- President and Chief Executive Officer

And I think the other thing that gives us confidence is that these flatline veins were very similar to ore that was mined at Mine 2 and part of the Sigma. So between the historical mining of similar flatline veins in the geology that Peter described, we have pretty high confidence that's going to be very similar metallurgy to what we've seen in the camp.

Mike Parkin -- National Bank -- Analyst

Okay. That's it from me, guys.

George Burns -- President and Chief Executive Officer

Thanks, Mike.

Operator

The next question is from Mike Jalonen of Bank of America. Please go ahead.

Mike Jalonen -- Bank of America -- Analyst

Hey, George and Phil, I just had a bigger picture question. Gold 1,725, down 45 today, probably a question I get next week at some dealers conference I've heard about. Just wondering capital allocation. I got you guys now into negative free cash flow this year, maybe Phil's numbers disagree of mine but when you start -- if gold stays down are you going to push out projects or slow down spending anything like that or you are just happy to follow the plan you have now if the gold price stay depressed? Thanks. are they like to other just happy to follow the plan. You have now if coal price stayed depressed. Thanks.

George Burns -- President and Chief Executive Officer

So maybe I'll just start off and then Phil can follow up. So I'd say the answer is no. I mean our growth focused on high quality, high return investment opportunities. So even at vastly lower metal prices, these projects makes sense. And from my perspective, particularly when you look to Skouries, it's going to change the baseline of our company. Our ASICs is going to drop dramatically. Skouries can be a cash flow generating machine at current spot prices, but even it at depressed metal prices, it's a fantastic asset. So I can see, in my view any downside potential in metal prices that that our growth opportunities would make sense and obviously all those comments are tied to successful financing that will have clarity around before the end of the year. Maybe, Phil, on the cash flow question.

Philip Yee -- Executive Vice President and Chief Financial Officer

Yes. Hi, Mike. So we prepared our budget with the $17.50 gold price, and we're expecting to generate positive free cash flow in 2021. It's not going to be at the level that we've reported for 2020, because our capital has increased, as I outlined earlier. But obviously there is priorities. We are in growth mode. And it's important for a company to continue to grow our assets and then generate value. If gold was to take a significant nosedive obviously there is other things that we'd have to reconsider. But I think given where market forecast consensus are, it looks to remain in this area and this range at this point and at where it is right now, like I said, we're -- we still expect to be in a good financial position.

Mike Jalonen -- Bank of America -- Analyst

Okay.

George Burns -- President and Chief Executive Officer

Yes. Mike.

Mike Jalonen -- Bank of America -- Analyst

Sorry, George.

George Burns -- President and Chief Executive Officer

Yes, I was just going to add on that obviously the drop turning today is not great news. But I think when you look at the impacts that COVID has had across the planet and all the challenges of countries we are going to be dealing with to get economies back in track, in our way of thinking we're going to be seeing a pretty solid gold price and there'll be volatility around it. But our outlook remains positive.

Mike Jalonen -- Bank of America -- Analyst

Okay, thanks for that. And I'll see you next week at the [Indecipherable] hotel. I'll buy you a beer in the lobby bar. Thanks.

George Burns -- President and Chief Executive Officer

Thanks, Mike.

Philip Yee -- Executive Vice President and Chief Financial Officer

Thanks, Mike.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. George Burns for any closing remarks.

George Burns -- President and Chief Executive Officer

Thanks everybody for dialing in. It's been -- last two years at Eldorado have been pretty darn successful in terms of return to our shareholders. I think this will be another breakout year for us. We're excited about the opportunities in front of us and look forward to keeping you updated. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Jeff Wilhoit -- Interim Director, Investor Relations

George Burns -- President and Chief Executive Officer

Philip Yee -- Executive Vice President and Chief Financial Officer

Joseph Dick -- Executive Vice President and Chief Operating Officer

Peter Lewis -- Vice President, Exploration

Jason Cho -- Executive Vice President and Chief Strategy Officer

Cosmos Chiu -- CIBC -- Analyst

Fahad Tariq -- Credit Suisse -- Analyst

Kerry Smith -- Haywood Securities -- Analyst

Josh Wolfson -- RBC Capital Markets -- Analyst

Mike Parkin -- National Bank -- Analyst

Mike Jalonen -- Bank of America -- Analyst

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